Question

Bridgeport Company recently hired a new accountant whose first task was to prepare the financial statements for the year ended December 31, 2021. The following is what he produced: BRIDGEPORT COMPANY Income Statement December 31, 2021 Sales $396,000     Less: Unearned revenue $5,600              Purchase discounts 3,400 9,000 Total revenue 387,000 Cost of goods sold     Purchases 231,500     Less: Purchase returns and allowances 4,000     Net purchases 235,500     Add: Sales returns and allowances 7,400     Cost of goods available for sale 242,900     Add: Freight out 9,400 Cost of selling merchandise 252,300 Gross profit margin 134,700 Operating expenses     Freight in 4,400     Insurance expense 10,400     Interest expense 2,400     Rent expense 17,900     Salaries expense 42,100 Total operating expenses 77,200 Profit margin 57,500 Other revenues     Interest revenue $1,400     Investment by owner 3,300 4,700 Other expenses     Depreciation expense 6,400     Drawings by owner 48,500 54,900 (50,200 ) Profit from operations $7,300 BRIDGEPORT COMPANY Balance Sheet Year Ended December 31, 2021 Assets Cash $16,800 Accounts receivable 8,000 Merchandise inventory, January 1, 2021 30,100 Merchandise inventory, December 31, 2021 23,900 Equipment $64,000 Less: loan payable (for equipment purchase) 49,900 14,100     Total assets $92,900 Liabilities and Owner's Equity Long-term investment $49,900 Accumulated depreciation—equipment 19,200 Sales discounts 2,900 Total liabilities 72,000 Owner’s equity 20,900     Total liabilities and owner’s equity $92,900 The owner of the company, Lily Oliver, is confused by the statements and has asked you for your help. She doesn’t understand how, if her Owner’s Capital account was $69,300 at December 31, 2020, owner’s equity is now only $20,900. The accountant tells you that $20,900 must be correct because the balance sheet is balanced. The accountant also tells you that he didn’t prepare a statement of owner’s equity because it is an optional statement. You are relieved to find out that, even though there are errors in the statements, the amounts used from the accounts in the general ledger are the correct amounts.

Prepare the correct multiple-step income statement. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Prepare the correct statement of owner’s equity. (List items that increase owner's equity first.) Prepare the correct classified balance sheet. You determine that $5,000 of the loan payable on the equipment must be paid during 2022. (List Current Assets in order of liquidity.)

Answer 1

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